Germany: Economic consequences of Brexit are "Out is out"

For many politicians and company heads it has been a short night. At 6:19 am (0419 GMT) German Minister for Economic Affairs and Energy Sigmar Gabriel reached for his mobile phone: "Damn! A bad day for Europe," he posted on Twitter.

The results of Britain's European referendum vote were announced Friday morning, with just under 52 per cent voting to leave the European Union.

German Finance Minister Wolfgang Schaeuble voiced his disappointment more tactfully: "We respect the result of Britain's referendum. I would have wished for a different outcome."

Both of them know that a British exit from the EU, or Brexit, means economic and financial turbulence for Europe. Markets were given a small foretaste in the hours following the announcement.

The Deutsche Boerse in Frankfurt, the biggest financial market in the eurozone, saw its DAX index fall by 9.98 per cent as markets opened. Other stock indices plummeted, and the pound fell below the 1.35-dollar level for the first time since 1985.

German companies, their associations and banks are worried as talk about incalculable consequences continue. Short-term concerns include: slumps in sales, withdrawal of companies and investments from Britain and years of negotiations on how the Brexit will proceed. Long-term concerns include the risk of EU disintegration and pressure on the eurozone.

The only consolation for German companies is that Frankfurt, Germany's financial centre, stands to gain as London fades in importance outside the EU.

Economists said Britain's exit was spooking markets because of the uncertainty connected to its implementation. In the days leading up to the vote, most had wagered on Britain voting Remain.

In order to avoid further shock waves in financial markets, the European Central Bank (ECB) and other banks developed emergency plans days in advance.

The Bank of England said it was ready to support the national economy with more than 250 billion pounds (344 billion dollars) in extra funds. The most extreme measures would be stock market closures.

Schaeuble said he is working with his counterparts from the G7 group of industrialized nations to ensure an orderly exit of Britain from the European Union, urging financial markets to calm down.

But Germany's top banking supervisor Felix Hufeld warned that there could be trouble for the large banks who have the most trading activity with or based in London.

In the next months and possibly even years, German companies will need adapt to new barriers with its major trading partners. But Berlin's political and economic stance towards the Brexit is clear: things will not continue as they were in a Britain-less EU.

Schaeuble and others warned that the surprisingly clear decision in favour of a Brexit must be seen as a wake-up call.

The British themselves would be most affected, but so would German industry. Investment plans are likely to be put on hold.

From credit insurer Euler Hermes's perspective, the German car industry must learn to adjust to losses, as should the mechanical engineering and chemical industries.

But exactly how much the economic downturn will impact Britain, Europe and Germany is impossible to predict. Britain is the second largest economy in the EU behind Germany and without them, the EU's economy will shrink between 2.85 trillion euros and upwards of 12 trillion.

About half of Britain's trade is with EU countries, and Germany stands to be among the biggest losers, as they are Britain's third largest market.

Britain's next step is starting the long process of setting up new trade agreements, worldwide and with the EU. Without Britain, Germany's role as the EU's biggest national economy will grow, an unpleasant turn of events for France and other southern European countries.

The Germans will also lose their British allies in competition and free trade policies; Merkel will miss their stance on reform and austerity measures. Trade agreements being negotiated, like TTIP with the US, are now more complicated. Berlin, together with Britain and north European countries, kept the EU on its economic course.

Merkel and Schaeuble will now take a harsher tone when dealing with London, the European Commission and future EU member states. The future of the EU will be a central campaign issue.

Furthermore, Britain will not be able to enjoy the advantages of a single market in the way Norway or Switzerland does without being a member of the EU, Schaeuble said: "Out is out."

Merkel emphasized that Britain will lose access to internal markets if they withdraw from the EU and that London needs to be prepared to no longer participate in EU-led negotiations. Britain should be treated as an outsider.

Both Berlin and Brussels are moving quickly to begin negotiations to minimize this period of uncertainty. "Europe will stand together now," Schaeuble said in Berlin, despite worries that other countries might follow Britain's example.

"If necessary, Europe can work without Britain," he said.

Last update: Fri, 24/06/2016 - 16:03
Author: 

More from Europe

Parliament backs Brexit timetable after May's concession on plan

British lawmakers backed Prime Minister Theresa May's timetable for Brexit negotiations by a large majority late...

Renzi quits as prime minister, leaving Italy in political quagmire

Italy was plunged into fresh political turmoil Wednesday, as Prime Minister Matteo Renzi resigned after complying...

NATO strongly supports Ukraine's integrity, says Croatian FM

NATO strongly supports Ukraine's territorial integrity and the European Union's sanctions against Russia will remain...

Three detained in France for connection to police killings

Three men have been detained in France for their suspected links to Larossi Abballa, the extremist who killed two...

Political veteran Doris Leuthard elected Swiss president for 2017

Centre-right politician Doris Leuthard will serve as Swiss president next year, the parliament decided Wednesday in...